Metro rail, big infrastructure projects: Debt mounting, state looks at off-budget borrowings for funding key projects

With debt further mounting on the state’s exchequer, the Bharatiya Janata Party-led government in Maharashtra has decided to fund big-ticket infrastructure projects through off-budget borrowings, keeping them outside the balancesheet of the government.
The government’s fiscal policy statement for 2018-19 states, “For implementation of Metro projects for Mumbai, Pune and Nagpur,

the Mumbai Metro Rail Corporation shall raise funds through multilateral and bilateral financial institutions. It is aimed at completing Metro projects in Mumbai and the Trans Harbour Link Project without creating financial liability on the state government and without schedule delays to avoid any cost overruns.”

State’s fiscal managers said that as part of the new expenditure policy, the government aims at availing sizeable off-budget external commercial borrowings for infrastructure projects relating to mass urban transport systems. The past approach has been the government borrowing money and providing funds to nodal agencies implementing these projects. The Centre has recently cleared the decks for borrowing funds through Special Purpose Vehicles (SPVs).

To improve public transportation in the Mumbai Metropolitan Region, the government has planned to build 266 kilometres of Metro rail network. Out of this, works for 163 kilometres of Metro rail has already been undertaken. According to Finance Minister Sudhir Mungantiwar, work for the remaining 103 kilometre-rail route will also be initiated within three or four years.
Metro rail works are also ongoing in Pune and Nagpur. Mungantiwar has only provided for subsidiary loans for the Metro rail routes in these three cities in his 2018-19 Budget.

An off-budget route is also being planned for the chief minister’s pet Mumbai-Nagpur Samruddhi Corridor project, expected to cost Rs 46,000 crore, and the Rs 19,000-crore Mumbai Trans Harbour Link project. Earlier, Union Finance Minister Arun Jaitley had spelt out a similar route for infrastructure projects taken up by the Ministry of Railways and the Ministry of Road Transport in the Centre’s budget.

Incidentally, while off-budget borrowings route will be used for ongoing big-ticket projects, the government has decided to raise funds for future projects through land securitisation. The Budget document concedes that off-budget borrowings for infrastructure projects may result in a substantial increase in the contingent liabilities of the state, but defends the move. “Such an approach will avoid thin spreading or paucity of funds, enabling faster completion of projects,” a senior finance official said.

“If the projects are executed without time and cost overruns, they themselves will yield adequate revenues allowing the concerned SPV to service debt without creating financial liability for the state government,” the official added. Faced with fund shortage, the government has also decided to prioritise additional investments in ongoing development and infrastructure projects. Mungantiwar also announced on Friday that the government would attempt to curtail non-productive expenditure by reviewing the staffing pattern across various departments, using direct bank transfers for subsidy payments, and streamlining the distribution of grants.

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